Beware The Nip Of Unexpected Closing Costs

You have finally saved enough for the down payment on your dream house. Now you're ready to buy it, close the deal, and move in.

Not so fast! Just because you've accumulated enough for that down payment -- probably about 20 percent of the purchase price -- doesn't mean you have enough cash to complete the deal.

Actually, you may need another 6 percent or so of the purchase price -- in cash -- and soon.

It's so easy to overlook closing costs when you look for a house, but they catch up with you soon enough. Closings invariably cost more than you expect. Closing costs have become so expensive because, simply, houses have become so expensive.

Many closing costs are based on a percentage of either the purchase price or the mortgage amount. Moreover, in cases where buyers finance a high percentage of the price -- usually more than 80 percent -- additional charges come into play.

To budget for your closing, check with your broker and lender and get a complete rundown on all the expenses you will have to pay and the deadlines for paying them.

While you won't be able to negotiate these expenses and whittle them down, you may be able to postpone some of them for the sake of your cash flow.

In any event, you want to avoid any last-minute surprises.

Most likely, you will stumble on bank financing costs first.

In addition to your application fee, you will probably have to pay for at least one appraisal of the property. That can cost you $200 or so.

Your bank may require two appraisals for an expensive or unusual property, in which case, double that amount.

Some lenders also require photographs and an additional inspection as added protection for them. As closing expenses go, this is relatively minor -- $35 to $50.

Your lender may also charge a document-preparation fee that can range from $50 to $150.

And, of course, you will most likely pay points on your mortgage. A point is 1 percent of the loan amount, and is usually considered prepaid interest.

Some lenders expect you to pay half the points when you accept the loan commitment; others let you pay the points at closing. Either way, points can add up. (Two points on a mortgage of $80,000 total $1,600.)

You may also have to get private mortgage insurance. As a rule, this will cost 1 percent, up front, at the closing, and then an ongoing monthly payment until the loan balance amortizes to a sufficiently low amount relative to the appraised value of the house.

Lenders usually require private mortgage insurance when they arrange financing for 80 percent or more of the house's appraised value.

You also may have failed to include impounds, or escrow amounts, in your plans, notes a spokesman for Century 21 Mortgage. Lenders maintain these to pay certain expenses: mortgage insurance, property taxes and homeowners insurance. Lenders almost always require them if you finance more than 80 percent of a house's appraised value. But impounds are becoming more frequent for all buyers.

Expect to deposit at least two months' expenses in this account so that the balance never falls below zero.

Wait, there's more. You'll also have to pay for a title search and, possibly, title insurance -- and add in recording fees. You must pay an attorney, escrow company or title company to arrange the closing and prepare and review the documents you need.

Closing on a house can easily precipitate a cash-flow crunch. Even though you can't duck the expenses, you can budget for them. Long before you're ready to buy, start saving for them.